U.S. stocks fall, Treasuries rise on budget concern; VIX surges

U.S. stocks retreated for a fourth day, while Treasuries gained, as Senate Majority Leader Harry Reid said nothing is happening in budget talks and the nation appears to be headed toward the fiscal cliff. The yen weakened.

The Standard & Poor’s 500 Index tumbled 1.1 percent to 1,404.31 at 2:12 p.m. in New York, with trading volume 18 percent below the 30-day average at this time of day. The VIX, the benchmark gauge of U.S. equity options, rallied for a sixth day. Ten-year Treasury yields were down five basis points at 1.71 percent and commodities declined. The yen fell 0.5 percent to 86.08 per dollar, near the lowest level since August 2010.

Equities extended declines as Reid said a resolution to the budget dispute before Jan. 1 appears unlikely because Republicans won’t cooperate, pushing the U.S. closer to more than $600 billion in automatic tax increases and spending cuts set to begin in 2013. The budget impasse in Washington helped trigger a worse-than-forecast drop in the Conference Board’s gauge of consumer confidence in December, the group said today.

“Markets are digesting the possibility of at least a brief visit over the cliff,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $113 billion, said in a telephone interview. Investors “understand that it usually takes a crisis in Washington to get anything done,” he said.

‘Extraordinary Measures’

Treasury Secretary Timothy F. Geithner said yesterday the government will hit its statutory debt ceiling on Dec. 31 and he will take “extraordinary measures” to postpone a U.S. default for about two months, allowing more time for lawmakers to agree on a deficit-reduction deal.

The S&P 500 fluctuated in early trading before turning lower after the Conference Board’s consumer sentiment gauge slid to 65.1, below the median forecast of economists in a Bloomberg survey for a reading of 70 and down from the revised 71.5 reading for the prior month.

Other reports showed U.S. jobless claims fell by 12,000 to 350,000 last week, less than the 360,000 median estimate in a survey of economists. Purchases of new homes climbed 4.4 percent to a 377,000 annual pace, the most since April 2010, following a revised 361,000 rate in October, the Commerce Department reported today. The median estimate of 71 economists surveyed by Bloomberg called for sales to increase to 380,000.

JPMorgan Chase & Co., Bank of America Corp. and Cisco Systems Inc. lost more than 2.2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average. Financial, commodity and technology shares led losses in all 10 of the main groups in the S&P 500.